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Housing Minister Grant Shapps today announced further details about the new scheme that will allow housing associations to offer flexible tenancies and deliver more affordable homes.

From 2011, housing associations will have an additional Affordable Rent option to offer households who need support. Affordable Rent properties will give housing associations the flexibility to offer fixed term tenancies to some new tenants at a rent level higher than social rent - with landlords able to set rents at up to 80 per cent of local market rents.

Landlords will be able to offer the new tenancies in return for investment agreements, which will enable them to raise funds to build more affordable housing. The flexible tenancies will be for new tenants only - the lifetime tenancies and succession rights of existing council and housing association tenants will not be affected.

The Affordable Rent model is the first step towards delivering these wider reforms announced last month and to be included as part of the forthcoming Localism Bill.

The Government is investing £4.5 billion to deliver up to 150,000 new affordable homes over the next four years, with around £2bn of this funding to support the delivery of new Affordable Rent homes. Ministers intend to make the payment of grant funding conditional on transparency.

Ministers believe the current centrally-determined system for social housing has led to the number of people on waiting lists over the past 13 years to almost double to five million. Affordable Rent is part of a package of measures that will affect all areas of social housing policy, giving councils and housing associations more flexibility to use their social housing stock to the maximum effect and drive down waiting lists.

In a statement published in Parliament today, Mr Shapps set out how the Affordable Rent scheme will work. Early next year, the Homes and Communities Agency will publish a full framework document that will form the basis for bids from housing associations who are interested in offering Affordable Rent.

Housing associations will have the flexibility to convert vacant social rent properties to the new flexible tenancies at a rent level of up to 80 per cent of market rent - but only after they have reached an investment agreement with the Homes and Communities Agency about how additional rental income will be reinvested in delivering new affordable housing.

Housing Minister Grant Shapps said:

With five million people languishing on waiting lists, it’s clear we need to act quickly to completely overhaul the system for social housing. That’s why today I am setting out the next steps towards a smarter system - one that ensures housing associations have the flexibility they need to target help at the people who really need it, for as long as they need it.

While we will not change the arrangements for existing tenants, it’s senseless to pretend, especially in times of economic hardship, that everyone accessing social housing is in the same boat, and needs a lifetime tenancy. Being able to offer a fixed-term Affordable Rent option will mean housing associations become even more effective in helping people get back on their feet, and ensure more affordable homes are built for every pound of taxpayers’ money that is spent.

The Government has embarked on a radical programme to shift power from Westminster to councils and communities, including a fundamental reform of social housing. The proposals include giving greater flexibility to both council and housing association landlords over the types of tenure they can offer to new social housing tenants. Many of the changes will require legislation and will be includes in the Localism Bill that will be published shortly.

The Affordable Rent model is the first step towards delivering these wider reforms. Housing associations will be able to offer Affordable Rent on fixed term tenancies, but they will also retain the option to offer lifetime tenancies should they wish to do so.

Under the plans, Affordable Rent properties will be allocated in the same way that social rent properties are now. Existing lettings arrangements operated by councils and housing associations will continue to apply and properties for Affordable Rent will be made available through choice-based lettings where appropriate.

Where a landlord decides not to reissue an Affordable Rent tenancy at the end of the fixed term, the landlord will need to provide advice and assistance to help the tenant find suitable alternative accommodation. Landlords and tenants will be able to consider a range of end of tenancy options, including selling the property to the tenant via conversion to shared ownership.

Notes to editors

The parliamentary statement with further details of the new Affordable Rent model to be offered by housing associations from April 2011 will shortly be available on the Department for Communities and Local Government website.

The Government has embarked on a radical programme to shift power from Westminster to councils and communities, including a fundamental reform of social housing. Details of the proposals, some of which will be subject to consultation, are published in Local decisions: a fairer future for social housing. A copy of the paper can be found at: www.communities.gov.uk/publications/housing/socialhousingreform.

Housing associations will be able to let an Affordable Rent property at up to 80 per cent of market rent for an equivalent property for that size and location. The association’s calculation of the market rent would need to be based on a residential lettings estimate for a property of the appropriate size, condition and area.

The statutory and regulatory framework for allocations provides scope for local flexibility. Councils and housing associations may wish to exercise this discretion in relation to Affordable Rent in order to meet local needs and priorities in the most effective way possible (for example, through the adoption of appropriate local lettings policies).

The maximum annual rent increase on an Affordable Rent property will be RPI + 0.5 per cent. However associations will be required to rebase the rent on each occasion that a new tenancy agreement is issued (or renewed) for an Affordable Rent property. This requirement overrides the RPI + 0.5 per cent limit and will ensure that the rent set at the beginning of each new tenancy is no higher than 80 per cent of the market rent.

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